No matter how well we believe we are managing our money, personal finance can always be improved upon. Some people believe it to be unnecessary, but if you find yourself never having any spare income to stash away, despite believing—or knowing—that you are certainly bringing in enough money to enable that, it might be time to pay closer attention to personal finance management.
Before we get into it, let’s first establish the meaning of personal finance management. Basically, every action of home finance budgeting and planning can be categorized as personal finance management, from the occasional trip to the supermarket to the purchase or financing of a car.
Some of it might appear to be insignificant or of little impact at first glance, but it all adds up. It is imperative that every single expense should be included in your budgeting for it to be accurate. Naturally, this will be the first step: categorizing your income and expenses.
Monitor and categorize everything
The first month will be the most important in this regard, as it will allow you to get to a general expense figure that will hopefully not vary too much. Basically, using spreadsheet software—either Excel or any other that you prefer—write down every single expense. Sorting them by categories here can help a lot: for example, placing movie tickets and games in an “entertainment” category. After you’ve categorized every single purchase, you can establish which ones are essential and which ones aren’t, allowing you to determine which part of your expenses must be reviewed to fit within the expected percentage, which is the next step.
The 50-20-30 rule
You might have heard of this, and there are some variations: 50-15-35, 60-10-30, and so on. Basically, for 50-20-30, the idea is that 50% of your income should go to essential purchases, 20% for savings or debt payments, and 30% for entertainment, leisure, or anything else that isn’t necessary.
Rather than picking it willy-nilly, take the figure you have found with the previous tip and check how much of your total income is spent on essentials, then choose the model that most adequately reflects that. Also, do not feel obligated to spend a certain amount on leisure! If 30% is more than you typically spend, dedicate a larger percentage to savings instead.
Are spreadsheets not your thing? Not to worry!
Thankfully, there are many tools in the market to aid you with personal finance, a great deal of them are phone apps. The advantage to this is that you don’t have to wait until you arrive home to update your spreadsheet – you can just do it on the fly, ensuring you don’t forget to do so. Some apps can even connect to your internet banking apps to make the process automatic, but it’s important to do some research about them to ensure that they are trustworthy.
Check for potential money-wasters
Sometimes, we pay for things that are not being used at all. Perhaps you’ve subscribed to one too many streaming services but can’t quite recall the last time you’ve watched anything on a few of them. The same can be said for your mobile data plan: You might be using Wi-Fi most of the time, but still paying for an unlimited data plan for your phone. These are only a couple of examples, but it’s very likely that you have at least one monthly expense of this nature. Unsubscribe from the services you don’t use and downgrade any plan that might be a bit too much for your current usage. If it comes down to it, you can simply resubscribe.
Saving money is great, but don’t just leave it idle in your account—invest! There are plenty of low-risk investments around, with varying degrees of liquidity. It is important to diversify your investments and refrain from putting it all in a low-liquidity asset, as you wouldn’t be able to reclaim your money in a timely manner, should an emergency arise. Treasury bonds, for instance, have a maturity date, and selling them before that date may yield you less than the amount you invested. It is also important to always do some independent research or get second opinions when it comes to this: don’t blindly invest in whatever your bank manager tells you to. Even though their goal is not to hamper your earnings, they are naturally going to promote products and investments that will benefit the bank, so there might be better investment alternatives on the market.
These tips should be enough to get you on the right track regarding personal finance management. Naturally, it is possible to further elaborate on it, such as subdividing your investments into different purposes, or even an emergency fund. It is also worth noting that budgeting can only go so far: if the percentage of your income that goes towards essential purchases is much larger than 50%, even after checking for potential unnecessary things, there’s not much breathing room. The best thing here would be to try and find a way to increase your income, which can be, at times, easier said than done. Still, even in these cases, adequate personal finance management can help you avoid getting into debt.